Philip Lane Irish Economy
fiscal expansion should be pursued where it makes sense but “one size does not fit all” and some conditions call for a different fiscal approach.
Here are some of the key issues (but please read my actual papers if you want the more detailed versions of these arguments):....
this list is my summary:
- pre existing specific bubbles in Ireland
- lack of control of our currency value
- runaway public sector pay
- lack of large government surpluses during the boom
- problems largely structural, GDP increase alone not sufficient
- deomgraphic problems
- high cost of debt funding for Ireland
For such reasons, I consider that those who advocate an ‘off the shelf’ Keynesian prescription (as advocated by Danny Blanchflower yesterday) do not have a correct diagnosis of Ireland’s current economic and fiscal situation. The standard Keynesian prescription is appropriate if an economy on a sustainable growth path and with sustainable public finances has been temporarily knocked off course by a demand slump. For the reasons given above, this is not the situation in Ireland
Comment by Colm McCarthy:
Philip’s central point, and the burden of Patrick Honohan’s remarks to the recent ESRI/Foundation for Fiscal Studies conference, is this: we are not redressing a fiscal imbalance deriving from a cyclical downturn. We are trying to recover from a Bubble.
Two bubbles actually - a public spending bubble (including public payroll) and a credit-fuelled property bubble. These were home-grown, but are compounded by the strong exchange rate, the worldwide credit crunch and international real economy downturn. David Blanchflower has missed these points about the Irish situation.
Comment by Colm Harmon
Philip reasonably presents why the situation is not one that allows ONE PART of the Blanchflower message (the spend spend spend argument) to follow through in Ireland.
is that the core message is well understood as portrayed by Philip in this post, by Colm McCarthy and other, and indeed very directly by John Fitzgerald